NEW DELHI | July 13: Global rating agencies Moody's and S&P today assigned low investment grade ratings to a US dollar bond issue of ONGC Videsh Ltd to fund its acquisition of 15 per cent stake in Russia's Vankor oilfield.

"Moody's Investors Service has assigned a Baa2 rating to the proposed foreign currency senior unsecured bonds to be issued by ONGC Videsh Vankorneft Pte Ltd (OVVPL), a wholly owned subsidiary of Oil and Natural Gas Corporation (ONGC)," the rating agency said in a statement.

S&P Global Ratings assigned its 'BBB-' long-term issue rating.

The state-owned firm will "unconditionally and irrevocably guarantee the notes," it said. "We consider the proposed notes as ONGC's debt obligation because the notes are issued by a 100 per cent-owned subsidiary set up to raise funds for ONGC."

ONGC Videsh, the overseas arm of ONGC, expects to use the proceeds of the proposed notes to refinance existing bridge loans incurred to acquire a 15 per cent stake in CJSC Vankorneft for $ 1.26 billion.

"The ratings outlook is stable," Moody's said. "The proposed foreign currency bonds are rated at the same level as ONGC's foreign currency issuer ratings because the bonds are unconditionally and irrevocably guaranteed by ONGC and the guarantee is pari passu to all senior unsecured obligations of ONGC."

S&P said the rating on ONGC reflects the company's strong competitive position as one of Asia's largest oil exploration and production companies with a long reserve life, stable production and good profitability.

However, ONGC's production is concentrated in India, particularly the Mumbai basin, and its expansion outside India is in higher-risk countries, it said adding the company is also exposed to negative government intervention, such as the sharing of oil subsidies.

Secured consolidated debt at ONGC accounted for about 4.3 per cent of its consolidated assets as of March 2016.

"Even though the guaranteed amount has been restricted to 109 per cent of the principal amount of the bonds outstanding, we view it as sufficient to cover the amounts due to bond holders.

"The restriction of a guarantee to a finite amount is driven by regulations in India, which do not allow open-ended guarantees for obligations of offshore subsidiaries, rather than an actual intention on ONGC's part to restrict its liability under the bonds," said Vikas Halan, Moody's Vice President and Senior Credit Officer.

Moody's said ONGC's issuer ratings incorporate expectation that the impact of declining oil prices on the company's cash flows will remain low, as the company benefits from a lowering of fuel subsidies, a reduction in taxes, and improved contributions from its downstream business.